This report is from today's CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.
There are clear winners in the AI race. Everyone else, however, is a bystander reaping no benefits — and that could have implications for broader markets.
What you need to know today
- The deal to suspend the U.S. debt ceiling cleared the House Rules Committee in a 7 to 6 vote, with two Republicans and all four Democrats opposing it. The bill — which the Congressional Budget Office said will reduce budget deficits by around $1.5 trillion — will now go to the House for a vote on Wednesday night U.S. time.
- Fresh off the Memorial Day break, U.S. markets traded mixed Tuesday, though major indexes registered only marginal movement. Asia-Pacific stocks fell Wednesday. Hong Kong's Hang Seng Index sank around 2% to enter bear market territory, while Chinese markets also tumbled on the back of disappointing factory activity in May.
- Weak factory activity isn't the Chinese economy's only problem. Its property sector is struggling with tepid sales, youth unemployment in April hit a record high and the tourism industry hasn't recovered despite the lifting of Covid lockdowns. Hence, some economists think the Chinese government and central bank might loosen monetary policy to stimulate the economy.
- So near, yet so far: Nvidia briefly hit a $1 trillion market capitalization Tuesday. But the chipmaker's shares lost momentum and fell during the trading day, giving it a market cap of $990 billion at close. Still, that's nothing to sniff at: Its shares are at a 52-week high.
- AI may be boosting markets, but it's causing worries elsewhere in society. "Mitigating the risk of extinction from AI should be a global priority alongside other societal-scale risks such as pandemics and nuclear war," read a terse one-sentence statement, issued Tuesday and signed by industry leaders and tech experts.
- PRO Nvidia's astounding surge has dominated the headlines lately, but there's another chipmaker that's also benefiting from the frenzy over artificial intelligence. Its stock has jumped 71% this year, rallying more than 32% on Friday alone.
The bottom line
There are clear winners in the AI race. Everyone else, however, isn't so much a loser, but a bystander reaping no benefits — and that could have implications for broader markets.
First, the winners. Semiconductor companies — especially those involved in manufacturing chips that serve as the brains of AI models — have been enjoying massive rallies. On Tuesday, Nvidia briefly flirted with a $1 trillion market cap, while other chipmakers like Marvell and Broadcom hit 52-week highs (even though their shares dipped at the close).
Big Tech firms enjoyed a boost as well. Amid the excitement over AI, shares of both Apple and Microsoft were juiced to their highest levels in a year.
But not everyone's hopping on the bandwagon. Some, in fact, got off before it even started rolling. Cathie Wood — the famed investor of next-generation technologies — sold off all Nvidia holdings in her Ark Innovation ETF in January. "At 25x expected revenue for this year, however, $NVDA is priced ahead of the curve," Wood said in a Twitter post Monday.
More crucially, the rally in markets has been narrow so far. Over the past three months, the S&P 500 has advanced nearly 6%, but the Invesco S&P 500 Equal Weight ETF has fallen more than 3%.
"We're not seeing any signs of broad participation. We're not seeing signs of early cyclicals on top of A.I.," said Andrew Smith, chief investment strategist at Delos Capital Advisors in Dallas. That disconnect could lead to a retreat in markets soon, warned Javed Mirza, technical analyst at Canaccord Genuity, a large investment firm in Canada.
Meanwhile, the broader economy isn't faring so hot. Oil prices sank more than 4% Tuesday, in a sign traders aren't optimistic about global economic growth. On an individual level, U.S. consumers were also less upbeat about the economy in May than April, according to the Conference Board's consumer confidence index.
"Their assessment of current employment conditions saw the most significant deterioration," said Ataman Ozyildirim, senior director of economics at The Conference Board. The jobs report for May, coming out Friday, will paint a clearer picture of the labor market. After all, in markets, expectations might not match reality — a lesson we've learned again and again since last year.
Subscribe here to get this report sent directly to your inbox each morning before markets open.
